The Fair Pay Act: Significant Implications for Employers

President Obama chose the Lilly Ledbetter Fair Pay Act of 2009 (“Fair Pay Act”) as the first law he signed after taking the oath of office, noting that its purpose was “to ensure fundamental fairness for American workers.” The Fair Pay Act overturns a 2007 U.S. Supreme Court decision holding that a female employee's Title VII sex discrimination complaint based on unequal pay was barred for failure to file with the Equal Employment Opportunity Commission (EEOC) within 180 days of the employer's discriminatory action that led to the pay differential.

The Fair Pay Act essentially confirmed Ms. Ledbetter's argument to the Supreme Court in Ledbetter v. Goodyear Tire, 550 U.S. 618 (2007) and the law in nine of 10 Circuit Courts of Appeal, as well as the EEOC's long-standing position, that the 180-day period for filing an EEOC charge (300 days in states with an antidiscrimination agency) begins anew each time discriminatory compensation is paid as a result of earlier discriminatory conduct.

Employers must take note of this development and ensure that their practices and policies promote a workplace free of discrimination, not only in compensation, but all other employee-related areas. This Advisory provides an overview of the Fair Pay Act's potential impact on employers and some steps employers can take to improve fairness and consistency while protecting themselves against older claims.

The Fair Pay Act is broader than the Ledbetter Title VII sex discrimination ruling; it applies to all federally protected classes by amending Title VII of the Civil Rights Act of 1964 (covering race, color, gender, national origin and religion), the Age Discrimination in Employment Act of 1967 (“ADEA”), the Americans with Disabilities Act of 1990 (“ADA”), and the Rehabilitation Act of 1973. The Fair Pay Act incorporates into each such statute the provision that an unlawful employment practice affecting compensation occurs when (1) a discriminatory compensation decision or practice is adopted, (2) an individual becomes subject to the decision or practice, or (3) an individual is affected by the decision or practice, including each time wages, benefits or other compensation is paid. The Act is retroactively effective to claims pending on or after May 28, 2007, the day before the Supreme Court's decision in Ledbetter.

The Fair Pay Act is intended to protect workers who, because employers generally do not publicize employees' earnings, may not realize they are unfairly being paid less until long after the compensation decision is made. As noted in the Act, “The Ledbetter decision undermines statutory protections by unduly restricting the time period in which victims of discrimination can challenge and recover for discriminatory compensation decisions.” In Ledbetter, the employee did not realize she was being paid less than men with similar qualifications, job duties, and experience throughout most of her tenure until near the end of her 19-year career.

Potential impact on employers

The Act essentially restores the law that existed in most federal jurisdictions before Ledbetter was decided, and makes clear that the provisions apply to other federal antidiscrimination laws in addition to Title VII. The Act serves as a reminder to employers of the legal exposure that might be accumulating in yet-to-be asserted discrimination claims long after the allegedly discriminatory conduct occurred. It also served as an opportunity for the EEOC to warn employers about forthcoming more aggressive enforcement.

Employer difficulties in defending aging claims

It may be encouraging to employers to learn that—despite the fact that employees may file complaints about discriminatory pay going back 20 years or more—the Act limits the employee's back pay recovery to two years from the date the charge is filed.1 Nonetheless, employers will face increasing problems in defending management decisions as those decisions age. With the passage of time, decision-makers' memories fade or they leave the company or even die. Additionally, relevant records are more likely to be lost or destroyed.

Employers may find themselves required to defend actions with little or no live testimony or pertinent documents. In Ledbetter, for example, the plaintiff's long-time manager, whom she accused of continuing discriminatory treatment, had died by the time of trial. (Although employees will face similar problems of proof, they are assisted by the “burden-shifting” rules in litigation, which place substantial burdens on employers to justify their decisions. In addition, plaintiffs can seek compensatory and punitive damages, as well as attorneys' fees, under Title VII, the ADEA, the ADA, and the Rehabilitation Act.)

Increased EEOC enforcement

Following enactment of the Fair Pay Act, the EEOC announced its intention to “enhance enforcement in this area, in addition to increasing public outreach and education.”2 In fact, the EEOC's advisory on the Fair Pay Act includes this admonition: “Notice to Potential Charging Parties: If you are aware of unexplained differences between your own compensation and coworkers' compensation and believe that the difference is because of your race, color, religion, sex, national origin, age, or disability, you should call 1-800-669-4000 or 1-800-669-6820 (TTY) for more information on filing a charge with the EEOC.” (Emphasis in original.)

Possibility that Act encompasses all types of employment discrimination claims

Employers should consider the possibility that inclusion of the language “or other practice” in the Act may provide the means by which a plaintiff can claim that the Fair Pay Act encompasses all types of employment decisions that arguably affect compensation, including promotion and job assignments.

Ability of non-employees to make pay discrimination claims

The U.S. House of Representatives rejected an amendment to the Fair Pay Act that would have limited claims to employees. The Act uses the term “an individual,” giving rise to the possibility that non-employees—such as the spouse of a deceased worker who claims to have been “affected” by the discriminatory practice—will be able to file pay discrimination claims.

Recommendations for proactive employer response to Fair Pay Act

Employers should understand the requirements and implications of the Fair Pay Act and consider which, if any, of their policies and practices need revision to ensure not only fairness and consistency, but the companies' ability to defend against older claims. For example, employers should:

With oversight of the legal department, periodically conduct compensation disparity analyses by protected class; include every bonus, benefit, and other form of compensation; and address and resolve significant disparities (other compensation-affecting processes, such as performance evaluations, should be similarly analyzed).

CAUTIONARY TIP: Before proceeding with an audit, an employer that is not a federal contractor should first thoroughly consider the process and ramifications of any audit well in advance in consultation with an experienced employment lawyer, including a decision as to whether the audit should take place at all, and to what extent, depending on the employer's practices and documentation related to pay decisions. The failure to undertake this pre-audit analysis could result in production of damaging evidence in any pay discrimination charge or lawsuit. Additionally, any audit should only be done under the direction of an attorney, to increase the likelihood that the audit results are protected by attorney-client and/or work product privileges.

Train and educate managers, supervisors, and human resources personnel on the Ledbetter case and requirements of the Fair Pay Act.

Improve documentation of the basis for compensation decisions.

Review record retention policies relating to pay and personnel documentation (such as performance evaluations) and consider lengthening them to account for evidentiary problems raised by older claims.

During employee on-boarding, training, and education sessions, emphasize the company's commitment to equity and the availability and importance of using the internal complaint process to investigate and resolve concerns about pay inequities.

Keep in mind that because the Fair Pay Act is retroactive to the Supreme Court decision date, any claims pending then or after against your company will be covered by the Act (similarly, any claims prior to May 28, 2007, will not be covered by the Act).

Conclusion

Congress is also considering another pay-related bill, the “Paycheck Fairness Act,” which would amend the Equal Pay Act (to increase penalties for violations, facilitate class actions, and other changes). In light of this Congressional focus on compensation equity and President Obama's (and the EEOC's) stated goal to enhance enforcement of civil rights in the workplace, employers should remain vigilant in their compensation practices, self-audits, and record-retention policies to maintain a workplace free of discrimination, not only in compensation, but all other areas as well.

FOOTNOTES

1 If the case proceeds to litigation, back pay may continue to accrue until the time of trial – resulting in a potential damage award that includes far more than two years' worth of back pay.

Disclaimer

This advisory is a publication of Davis Wright Tremaine LLP. Our purpose in publishing this advisory is to inform our clients and friends of recent legal developments. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations.